1971 (4) TMI 35 - HC - Income Tax

By this writ petition, filed under article 226 of the Constitution of India, the petitioner seeks a writ or direction prohibiting or restraining the Income-tax Officer, Rajahmundry, from proceeding further in pursuance of notice dated December 11, 1970, issued under section 148 of Income-tax Act, 1961, proposing to reopen the assessment for the assessment year 1965-66 and requiring him to file a return of income for the said assessment year - Whether individual partner s assessment can be reopened after the discovery of concealment of income by the firm

Issues Involved:
1. Timeliness and validity of the notice under Section 148 of the Income-tax Act, 1961.
2. Recording of reasons for reopening the assessment under Section 147(a).
3. Justification for reopening the assessment of individual partners based on the firm's concealment of income.
4. Applicability of Section 155 versus Section 147 for amending the assessment.

Issue-wise Detailed Analysis:

1. Timeliness and Validity of the Notice under Section 148:
The petitioner argued that the notice dated December 11, 1970, was time-barred as it was issued after four years from the end of the assessment year 1965-66, and did not disclose the sub-section of Section 147 under which it was issued. However, the court noted that the notice was issued under Section 147(a), which allows for reopening of assessments if income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court confirmed that the notice was issued within the permissible time limit under Section 149, which allows for such notices to be issued within eight years if the escaped income exceeds Rs. 50,000.

2. Recording of Reasons for Reopening the Assessment under Section 147(a):
The petitioner contended that the Income-tax Officer did not record his reasons in writing, and the Commissioner did not apply his mind in granting sanction. The court, however, found this contention factually incorrect, as the Income-tax Officer had indeed recorded his reasons, and the Commissioner had sanctioned the notice after due consideration. The court referred to the Supreme Court decision in Chhugamal Rajpal v. S. P. Chaliha, emphasizing that the Income-tax Officer must have prima facie grounds for issuing the notice. In this case, the reasons were adequately recorded, and the Commissioner's approval was justified.

3. Justification for Reopening the Assessment of Individual Partners Based on the Firm's Concealment of Income:
The petitioner argued that the concealment of income by the firm does not justify reopening the assessment of individual partners, as they are distinct taxable entities. The court rejected this argument, stating that the concealment of income by the firm amounts to concealment by the partners, as the basis of the assessment of individual partners is the firm's income. The court referred to the Division Bench decision in Indra Singh and Sons Private Ltd. v. Union of India, which supported this view, and found the petitioner's reliance on the single judge decision in Girdhardas Kothari v. Income-tax Officer unconvincing.

4. Applicability of Section 155 versus Section 147 for Amending the Assessment:
The petitioner contended that Section 155, being a special provision, should prevail over Section 147, a general provision, for amending the assessment of individual partners after reassessment of the firm. The court dismissed this argument, stating that Sections 147 and 155 are not mutually exclusive. The Income-tax Officer has the discretion to take action under either section, and it is not within the assessee's province to challenge this discretion. Additionally, the court noted that other individual incomes of the assessee, which escaped assessment, could only be brought under assessment by reopening under Section 147(a), not by modification under Section 155.

Conclusion:
The court found all contentions raised by the petitioner devoid of merit. The Income-tax Officer had valid reasons for reopening the assessment, and the Commissioner had duly sanctioned the notice. The concealment of income by the firm justified reopening the assessment of individual partners. Sections 147 and 155 are not mutually exclusive, and the Income-tax Officer's action under Section 147 was appropriate. Consequently, the writ petition was dismissed with costs, and the interim stay was vacated. Advocate's fee was set at Rs. 250.

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